CHARTERED ACCOUNTANTS ACADEMY

AUDITING DEPARTMENT

CERTIFICATE OF THEORY IN ACCOUNTING

STUDY UNIT 4 – COMPANIES AND OTHER BUSINESS ENTITIES ACT

TABLE OF CONTENTS PAGE

Contents
1. Introduction...............................................................................................................................107
2. Objective of the COBE..................................................................................................................107
3. Scope.........................................................................................................................................107
4. Study Material and Relevant ISAs..............................................................................................107
5. Competence Framework expectation........................................................................................107
6. Examination possibilities...........................................................................................................111
7. Assumed Knowledge.................................................................................................................112
8. Integration.................................................................................................................................112
9. Course Notes...............................................................................................................................112
9.1. Overview of the COBE................................................................................................................112
9.1.2. New provisions include:..........................................................................................................112
9.1.3. Key areas of focus:................................................................................................................113
10. Question on the Companies and other business entities Act......................................................133
1. Introduction
As a future accountant and auditor, it is of the utmost importance that you have a sound
knowledge of the legal environment that you will be operating in. Your knowledge of the
Companies and other business entities Act (“COBE”) will therefore be enhanced and tested
in the following study unit.

2. Objective of the COBE

 Identifying and evaluating the requirements of the COBE in detailed technical
examples.
 Evaluating and advising on compliance with the COBE requirements.
 Providing appropriate recommendations for compliance with the COBE.
 The above discussions, evaluation and application should be made on, amongst
others, the following concepts and areas:
Administration of the Act, provisions common to companies and private business
corporations, incorporation of companies and matters incidental thereto, private
business corporation and other business entities, electronic registry, loans, shares,
payments to shareholders and debentures, auditors, offer of shares and prospectus,
meetings and minutes directors, financial records, annual financial statements and
group statements.

3. Scope
Companies and Other Businesses Entities Act (Chapter 24:31) with main focus on financial
reporting, auditing, governance and specific transactions.

4. Study Material and Relevant ISAs

 Companies and Other Businesses Entities Act (Chapter 24:31) as found in the ICAZ
Legislation handbook
Lecturer’s Comment - we recommend that you study the COBE directly from the ICAZ
Legislation Handbook as this is a book you will be able to take in with you when sitting
for a test or exam as per the open book policy.

5. Competence Framework expectation

APPENDIX 1 KNOWLEDGE REFERENCE LIST: COMPANIES ACT
Companies and Other Business Entities Act Chapter 24:31 Knowledge level
Section Topic
Part I Preliminary
1 Short Title 1
2 Interpretation To be read in
conjunction with
relevant sections
3 When persons deemed to be associates and when 1
persons deemed to control companies
4 Non-Application of Act to certain Institutions 1
5 Registrable business entities 1
Part II Administration
6 Office for the Registration of Companies and Other 2
Business Entities; Registrar, registries and
inspectorate.
7 Funds of Companies Office 1
8 Annual and other reports of Companies Office. 2
9 Form of registers and other documents. 1
10 Forms and tables and application of certain Schedules 1
and licences
11 Registrar’s power to refuse registration 1
12 Extension of time for lodging returns, etc. 1
13 Proof of certain facts by affidavit. 1
14 Inspection and copies of documents in Companies 1
Office and production of documents in evidence.
15 Additional copies of returns or documents 1
16 Replacement of lost documents. 1
17 Exemption from liability for acts or omissions of 1
Companies Office and persons employed therein.
CHAPTER II - Provisions Common to Companies
and Private Business Corporations
PART I - General
18 Registration of constitutive documents 1
19 Incorporation of companies and private business 2
corporations and capacity and powers thereof
20 Effect of registration of constitutive documents and 2
limitation of liability of members of companies and
private business corporations.
21 Availability and publicity of constitutive documents. 1
22 No constructive notice of constitutive documents or 1
other public documents.
23 Copies of constitutive documents to embody 1
alterations
24 Presumption of regularity; liability not affected by 1
fraud.
25 Prohibition of undesirable name 1
26 Change of name 1
27 Statement of objects of registered business entity and 1
effect thereof.
28 Provisions in connection with use of names by 1
registered business entities
29 Lawful use of assumed names by registered business 1
entities
30 Publication of directors’ or members’ names 2
31 Postal address, electronic mail address and registered 2
office
32 Ratification of contracts 1
33 Form of contracts 1
34 Promissory notes and bills of exchange 2
35 Execution of documents domestically and in foreign 1
countries
36 Official seal for use in foreign countries 1
37 Authentication of documents 1
PART II - Inspection and Investigation
38 Purposes of inspections and investigations and powers 2
in connection therewith
39 Investigation by Registrar 2
40 Investigation on request of minority shareholders 3
41 Investigation to determine ownership or control 2
42 Investigation of registered business entity’s affairs in 1
other cases
43 Power of inspectors to investigate related registered or 2
unregistered business entities
44 Production of records and evidence on investigation 2
45 Registrar’s report 2
46 Proceedings on Registrar’s report 1
47 Expenses of investigation of affairs of registered 2
business entity
48 Power to require information as to holders of shares, 2
debentures or interests
49 Power to impose restrictions on shares, debentures or 3
interests
50 Saving for legal practitioners and bankers 1
51 Report following investigation to be evidence 1
PART III - Defunct Business Entities
52 - 53 Defunct Business Entities 1
PART IV - Common Provisions Relating to Fiduciary
Duties, Remedies and Legal Proceedings
54 - 55 Subpart A: Duties of office bearers of companies and 3
private business corporation
56 - 58 Subpart B: Duty of loyalty – conflicts of interest 3
59 - 65 Subpart C: Other legal proceedings and remedies 3
66 Subpart D: Indemnification and insurance 2
PART V - Offences and Defaults Common to Registered
Business Entities
67 - 74 Offences and Defaults Common to Registered Business 3
Entities
Companies and Other Business Entities Act Chapter 24:31 Knowledge level
Section CHAPTER III - Companies
PART I - Introduction
75 - 82 Sub-Part A: Incorporation of companies and matters 3
incidental thereto
83 - 84 Sub-Part B: Membership of company 3
85 - 86 Sub-Part C: Private companies 3
87 - 94 Sub-Part D: Co-operative companies 2
PART II - Share Capital and Debentures
95 - 102 Sub-Part A: General nature of share capital of 3
companies
103 - 114 Sub-Part B: Prospectus 2
115 - 121 Sub-Part C: Allotment 1
122 - 123 Sub-Part D: Commissions and discounts 1
124 - 134 Sub-Part E: Issue of shares at premium or discount 3
and redeemable preference shares
135 - 143 Sub-Part F: Miscellaneous provisions as to share 3
capital
144 - 149 Sub-Part G: Reduction of share capital 3
150 - 157 Sub-Part H: Transfer of shares and debentures, 2
evidence of titles, etc.
PART III - Management and Administration of
Companies
158 - 164 Sub-Part A: Restrictions on commencement of 1
business and register and index of members
165 - 181 Sub-Part B: Annual return and meetings and 3
proceedings
182 - 194 Sub-Part C: Accounts and audit 3
195 - 217 Sub-Part D: Directors and other officers 3
218 - 221 Sub-Part E: Responsibilities of boards, audit 3
committees of public company and corporate
governance guidelines for public companies
222 - 225 Sub-Part F: Protection of minority shareholders 3
226 - 233 Sub-Part G: Mergers etc. 3
234 - 239 Sub-Part H: Takeovers 3
PART IV - Foreign Companies
240 - 246 Foreign Companies 2
CHAPTER IV - Private Business Corporation and
other Business Entities
247 - 304 Private Business Corporation and other Business 1
Entities
SCHEDULES
1st Form of Memorandum of Association of a Company
2nd Form of Statement in Lieu of Prospectus to be 1
Delivered to Registrar by Private Company on
Ceasing to be Private Company and Reports to be
Set Out Therein.
3rd Form of Statement in Lieu of Prospectus to be 1
Delivered to Registrar by a Company Which Does
Not Issue Prospectus or Which Does Not Go to
Allotment on a Prospectus Issued, and Reports to be
Set Out Therein
4th Form of Annual Return of Company 1
5th Fees 1
6th Model Articles and By-laws 1
7th User Agreement 1
8th Matters to be Specified in Prospectus and Reports 1
 to
be Set Out Therein
9th Penalties for Late Submissions of Documents or 1
Notices
10th Form for Re-registration of Companies and PBCs 1

6. Examination possibilities
 Highly examined in a question that provides a scenario and requires that the legality
of any transactions/schemes that were implemented be evaluated.
 Advice regarding alternatives and or further requirements that have to be met may
also be required.
 A question setting out certain transactions/schemes that are contemplated or were
implemented and requiring the audit procedures that should be performed to obtain
sufficient appropriate audit evidence on them to be described.
 We suggest that you approach questions as follows:
Questions that require advice on or the evaluation of a given situation:

 Identify all transactions/events

 Determine which requirements of the relevant section relate to each
transaction/event
 These requirements may relate to:
- Powers of the entity (memorandum, sections of the Act)
- Specific authorisation required (e.g. special resolution, ordinary resolution)
- Special preconditions (assets exceed liabilities)
 Reproduce theory applicable to each transaction/event
 Apply theory to facts given in question
 Conclude on legality of each transaction/event
 Make recommendations or discuss alternatives (if required by the question)

NB: Students should pay attention to the wording of the required. If asked about concerns,
you must only discuss non-compliance. The best way to address a concern is to start a
sentence by stating – it is of concern that…, some questions require discussion of both
compliance and non-compliance, and your answers should not be limited to non-
compliance.
Normally only substantive procedures will be possible since transactions affected by specific
legal requirements usually occur sporadically and no/limited internal controls will be
present to mitigate the risks related to them.

 Identify all transactions/events.

 Determine which requirements of the Act relate to each transaction/event
  Visualize and note the accounting journal entry underlying each transaction
described in the question
 Identify source(s) of audit evidence
 Develop audit procedures, using the following audit assertions
- occurrence (power, authorisation, special requirements)
- accuracy (amount/calculation; all aspects of each transaction)
- completeness (all transactions)
- cut-off (correct period)
- classification (as current asset/liability, non-current asset/liability or
income/expense)
- disclosure (based on Statements of IFRS)

Remember that the purpose of performing audit procedures is to obtain sufficient

appropriate audit evidence that the financial statements are fairly presented. Possible
sources of evidence include:

 memorandum of incorporation
 notices of meetings
 minutes (always be specific as to those of directors’ meetings or members’ meetings)
 statutory registers

7. Assumed Knowledge
The audit process is assumed knowledge which you should already have at CTA level.

8. Integration
This topic can be integrated with Financial accounting and reporting transactions,
management accounting and finance transactions and Taxation transactions.

9. Course Notes
9.1. Overview of the COBE
From your previous studies you may have been familiar with the Companies Act (Chapter
24:03). November 15, 2019 saw the gazetting of the COBE Act Chapter 24:31. The COBE Act
repeals the Companies Act. COBE embraces world trends and adopts aspects of corporate
governance. COBE makes provision for information, technology and communication as
Zimbabwe will see electronic transactions such as electronic filing.

9.1.2. New provisions include:

 Electronic registry of Companies – which will permit the digitization of the company
registry and the eventual establishment of an electronic companies’ registry in
Zimbabwe supplementing the paper-based one, thereby, greatly expediting and
facilitating company registry administration.
  There will be access to the electronic registry for the purpose of information
gathering which is subject to certain safeguards against fraud, violations of privacy
and other abuses.
 COBE consolidating the Companies Act and Private Business Corporations’ Act
(Chapter 24:11), placing all options for companies in one place and will ensure access
to the registrar of companies to more Zimbabweans as more registries are opened in
other parts of Zimbabwe.
 While the Companies Act makes provision for inspections, COBE introduces the
establishment of an inspectorate with revised powers. The revised powers of
investigation and inspection of companies and other business entities is aimed at
promoting good corporate governance and inspire investor confidence.
 COBE sees the substitution of criminal penalties with civil penalties. The majority of
offences under the Companies Act were of a minor character involving only minor
offences of default fines. The infringements concerned are in the nature of
administrative breaches and not criminal in themselves. The removal of the criminal
aspect avoids ascribing that criminal stigma to people who commit minor offences
which are proposed to be dealt with by way of civil penalties which the Registrar
levies.
 Directors of companies and managers of private business corporations as office
bearers have expanded duties of care and loyalty. Included in COBE are provisions
which are fiduciary duties, remedies and legal procedures which are common to
directors and managers
 A specific statement as to the board’s role and responsibilities is included and the
law of companies and business entities in Zimbabwe sees the introduction of the
mandatory requirement for an audit committee for every public company. A strong
emphasis on independence is underlined.
 The new provisions adopt international corporate governance best practice, included
are specific corporate governance guidelines for public companies. These provisions
usher in a culture of transparency and accountability.
 COBE contains new and detailed procedures for mergers and takeovers with
protection of minority shareholders in line with the Tariff and Competition Act
(Chapter 14:20). The procedure includes an independent fairness opinion and sees
the introduction of dissenting shareholder appraisal rights similar to those in the
South African Companies Act. This inclusion increases investor confidence and may
improve Zimbabwe country ratings with the World Bank.

9.1.3. Key areas of focus:

The relevant sections of the COBE must be reviewed and highlighted for application in a CTA
question. There is significant practice of this in the tutorial questions provided. It is highly
recommended that you review the ICAZ Competency Framework for the level of knowledge
required for each section of the Act.
Companies and Other Business Entities Act Chapter 24:31

Below is a summary of some of the key sections from the companies’ act, however students
should use the ITC competency framework to revise the companies act.

Section Summary
Sec 3 - When persons
deemed to be associates  Where a person, other than an employee, acts in
and when persons accordance with the directions, requests, suggestions
deemed to control or wishes of another person, both persons shall be
companies treated as associates of each other. Sec 3 (3) a-h
defines an associate, examples of an associate include
a near relative, a partner and a partnership in which
the person is a partner.

 Sec 3 (4a and b) – defines persons controlling a

company. A person shall be deemed to control a
company if the person, either alone or together with
one or more associates or nominees—
 controls the majority of the voting rights attaching to
all classes of shares in the company or
 has any direct or indirect influence that, if exercised,
results in him or her or his or her associates or
nominees factually controlling the company.

Sec 4 - Non-application of The COBE is not applicable to banking institutions, building

Act to certain institutions societies, insurers, micro-finance institutions, co-operative
society, trade unions or employers’ organisations or other
entities whose formation registration and management are
governed by any other enactment.

Sec 5 - Registrable The following types of business entities are registrable under
business entities this Act—
(a) a public limited company
(b) a private limited company
(c) a company limited by guarantee
(d) a co-operative company
(e) a foreign company
(f) a private business corporation
(g) subject to section 278 “Voluntary registration of
partnership agreements”, partnerships, syndicates,
joint ventures and certain associations of persons.
Sec 18 - Registration of The registration of a memorandum and articles of association
constitutive documents or an incorporation statement may be done either
 electronically or manually in accordance with this section
On registering the memorandum of association or the
incorporation statement, the Registrar shall—
(a) assign a registered number to the company or the
private business corporation; and
(b) return one copy of the memorandum of association or
the incorporation statement to the applicant and
(c) issue a certificate of incorporation.

The certificate of incorporation or a copy thereof issued shall

be conclusive evidence that all the requirements of the COBE
in respect of registration and of matters precedent and
incidental thereto have been complied with and that the
company or private business corporation is duly incorporated
under the COBE.
Sec 32 - Ratification of A contract made in writing by a person claiming to act as an
contracts agent or trustee for a company or private business
corporation not yet formed, incorporated or registered shall
be capable of being ratified or adopted by or otherwise made
binding upon and enforceable by the company or private
business corporation after it has become a registered
business entity, if—
(a) on registration, the entity’s constitutive documents
contain as one of the entity’s objects the adoption or
ratification of or the acquisition of rights and
obligations in respect of such contract; and
(b) the contract or a certified copy thereof is delivered to
the Registrar simultaneously with the delivery of the
entity’s constitutive documents in terms of section 18
(“Registration of constitutive documents”).
Sec 54 - Duty of care and Every manager of a private business corporation and every
business judgment rule director or officer of a company has a duty to perform in
good faith, in the best interest of the company, and with the
care, skill, and attention that a diligent businessperson would
exercise in the same circumstances.
In performing that duty, the manager, officer or director may
rely on information, financial statements, opinions, reports of
independent auditors or legal practitioners or of experts or
employees of the registered business entity whom the person
reasonably believes are reliable and competent to issue such
information, opinions, reports or statements.

A person who makes a business judgment fulfils with respect

to that judgment if that person—
(a) does not have a personal interest as defined in section
56 (“Transactions involving conflict of interest”) in the
subject of the judgment; and
 (b) is fully informed on the subject to the extent
appropriate under the circumstances; and
(c) honestly believes when the judgment is made that it is
in the best interests of the company or corporation.

No provision, whether contained in a company’s articles or a

private business corporation’s by-law shall relieve a director
from the duty to act in accordance with the duty of care and
business judgment rule or relieve him or her from any liability
incurred as a result of any breach of such duty.
Sec 55 - Duty of loyalty A manager or controlling member of a private business
corporation, a director, officer or controlling member of a
company has a duty to act with loyalty to that registered
business entity and, in the case of a company, towards any
subsidiary of that company.
Section 55 (3a-i) outlines examples of the duty of loyalty for
example
 not to use property of the registered business entity
for personal benefit or for the benefit another person
other than the entity
 not to disclose confidential information of the entity
or to use confidential information of the entity
personal benefit or for the benefit another person
other than the entity.
 not to abuse the person’s position in the registered
business entity for personal benefit, or for the benefit
another person other than the entity.

Sec 56 - Transactions A person is deemed to have a personal financial interest in a

involving conflict of transaction with the registered business if–
interest (a) that person or a near relative or other associate of
that person is a party to the transaction or has a
material financial interest in the transaction or
(b) that person has a financial or family member
relationship with a party to the transaction, or with a
person who has a material financial interest in the
transaction, that could reasonably be expected to
affect that person’s judgment adversely to the
registered business entity.

A director may disclose any personal financial interest in

advance, by delivering to the board, or shareholders a notice
in writing setting out the nature and extent of that interest.

Sec 57 - Duty to disclose If a person has a personal financial interest or knows that an
conflict of interest associate has a personal financial interest in the matter to be
considered at a meeting of the board of the company or
 meeting of the members of the private business corporation
the person shall follow steps (a-g) outlined in Section 57.

Sec 60 - Direct actions by A member of a private business corporation or a company

members may bring an action in court in such person’s own name
against any manager, officer or director to enforce, or recover
damages caused to him or her by violation of a duty
incumbent upon any such manager, officer or director under
the COBE or any other law including laws against fraud or
misappropriation.

Sec 68 - Fraudulent, If it appears to a court that any business of a company or

reckless or grossly private business corporation was or is being carried on
negligent conduct of recklessly or with gross negligence or with intent to defraud
business any person or for any fraudulent purpose the court may
declare that —
(a) any of the past or present directors of the company or
any other persons who were knowingly parties to the
carrying on of the business in such manner or in such
circumstances; or
(b) person who was knowingly a party to the carrying on
of business of the private business corporation in such
manner or in such circumstances

shall be personally responsible, without limitation of liability,

for all or any of the debts or other liabilities of the company
or private business corporation as the court may direct, and
the court may give such further orders as it considers proper
for the purpose of giving effect to the declaration and
enforcing the liability.

Sec 71 - Unlawful If any person falsely and deceitfully personates any owner of
personation and any share or interest in any company or of any interest in a
misrepresentation in private business corporation and thereby obtains or
relation to shares and endeavors to obtain any such share or interest or receives or
interests endeavors to receive any money due to any such owner as if
the impersonator were the true and lawful owner, he or she
shall be guilty of an offence and liable to a fine not exceeding
level 12 or to imprisonment for a period not exceeding five
years or to both such fine and such imprisonment.

Sec 74 - Indemnity and
civil and criminal liability
of officers and auditors of
companies
Subject to the articles of the company or by-laws of the
private business corporation, or in any contract with a
company, every
director, managing director, agent, auditor, secretary and
other officer for the time being shall be entitled to an
indemnity from the company for payments made and
 personal liabilities incurred by him or her—
(a) in the ordinary and proper conduct of the affairs of
the company or private business corporation; and
(b) in or about anything necessarily done for the
preservation of the undertaking or property of the
company or private business corporation

Sec 75 - Prohibition of No company, association, syndicate or partnership consisting

association or of more than twenty persons shall be formed in Zimbabwe
partnership exceeding for the purpose of carrying on any business that has for its
twenty persons object the acquisition of gain by the company, association,
syndicate or partnership, or by the individual members
thereof, unless it is registered as a company under or as a
private business corporation or is formed in pursuance of
some other law.

Sec 77 - Memorandum of 1. In the case of a company limited by shares the

company memorandum shall be in the English language, or
subject in an officially recognized language and must
state the name of the company which shall, unless a
licence has been granted have “Limited” as the last
word and shall also have included therein—
(a) in the case of a private company, the term “(Private)”
(b) in the case of a co-operative company, the word “Co-
operative” or the abbreviation “Co-op”

Sec 83 - Membership of If a company has no members and carries on business for

company; personal more than six months without members, any person who
liability where business knowingly causes it to carry on business shall be liable, jointly
carried on with no and severally with the company, for all debts incurred by it
members after the six months have elapsed.

Sec 84 - Membership of A body corporate cannot be a member of a company that is

holding company its holding company, and any allotment or transfer of shares
in a company to its subsidiary is void.
Sec 85 - Definition of In the COBE, “private company” means a company other than
private company and a co-operative company, which by its articles—
consequences of default (a) restricts the right to transfer its shares; and
in complying with (b) limits the number of its members to fifty
conditions for private (c) prohibits any invitation to the public to subscribe for
company any shares or debentures of the company.
 Where two or more persons hold one or more shares
in a company jointly they shall, for the purposes of
this section, be treated as a single member.
 With the sanction of a special resolution and subject
to confirmation by the High Court, a public company
may convert itself into a private company.
Sec 95 - Legal nature of 1. A share issued by a company is movable property and
shares and requirement transferable in any manner provided for by the
to have shareholders articles of the company or recognized by the COBE or
any other law.
2. A share does not have a nominal or par value.
3. A company may not issue shares to itself.
4. An authorised share of a company has no rights
associated with it until it has been issued.
Sec 96 - Authorisation for 1. A company’s memorandum—
shares a. must set out the classes of shares, and
b. the number of shares of each class that the
company is authorised to issue; and
c. must set out, with respect to each class of shares
—
i. a distinguishing designation for that class; and
ii. the preferences, rights, limitations and other
terms associated with that class and
d. may authorise a stated number of unclassified
shares, which are subject to classification by the
board of directors.
e. may set out a class of shares—
i. without specifying the associated preferences,
rights, limitations or other terms of that class; or
ii. for which the board of directors must determine
the associated preferences, rights, limitations or
other terms; or
iii. which must not be issued until the board
directors has determined the associated
preferences, rights, limitations or other terms.

Sec 97 - Preferences, 1. All of the shares of any particular class authorised by a

rights, limitations and company have preferences, rights, limitations and
other share terms other terms that are identical to those of other shares
of the same class, except to the extent that the
company’s memorandum provides otherwise
2. Each issued share of a company, regardless of its class,
has associated with it one general voting right, except
to the extent provided otherwise by the COBE or the
preferences, rights, limitations and other terms
determined by or in terms of the company’s
memorandum.
3. Despite anything to the contrary in a company’s
memorandum—
a. every share issued by that company has associated
with it an irrevocable right of the shareholder to
vote on any proposal to amend the preferences,
rights, limitations and other terms associated with

Sec 98 - Issuing shares
that share; and
b. a company must always have ordinary shares and
in addition to any class of share as may be
prescribed in the company’s constitutive
documents.
1. The board of directors may resolve to issue shares of
the company at any time, but only within the classes,
and to the extent, that the shares have been
authorised by or in terms of the company’s
memorandum.
2. If a company issues shares— that have not been
authorised in accordance with section 96; or in excess
of the number of authorised shares of any particular
class, the issuance of those shares may be
retroactively authorised in accordance with section
96.

Sec 99 - Subscription for This section does not apply to a public company or State-
additional shares in owned company, except to the extent that the company’s
private companies memorandum provides otherwise, and applies to a private
company with respect to any issue of its shares, other than—
i. shares issued in terms of options or conversion rights
or
ii. capitalisation shares issued as contemplated in
section 137
Sec 102 - Solvency and A company satisfies the solvency and liquidity test at a
liquidity test particular time if, considering all reasonably foreseeable
financial circumstances of the company at that time—
(a) the assets of the company or, if the company is a
member of a group of companies, the aggregate
assets of the company, as fairly valued, equal or
exceed the liabilities of the company or, if the
company is a member of a group of companies, the
aggregate liabilities of the company, as fairly valued;
and
(b) it appears that the company will be able to pay its
debts as they become due in the ordinary course of
business for a period of— twelve months after the
date on which the test is applied; or

In the case of a distribution twelve months following that

distribution.

Sec 103-112 - Dating of A prospectus issued by a company shall be dated and that
prospectus date shall be taken as the date of publication of the
prospectus.
Sec 114 - Restrictions on It is not lawful for any person to engage in the door-to-door
offering shares for solicitation of members of the public at their homes or in
subscription or sale offices, shops or business premises, to subscribe for shares or
debentures (however, the solicitation at the office or business
premises of any person whose ordinary business or part of
whose ordinary business it is to deal in shares or debentures,
whether as principal or agent, is permitted)
No person shall either verbally or in writing, including any
newspaper advertisement—
(a) make an offer of shares for sale to the public or any
member of the public; or
(b) invite offers from the public or any member of the
public to purchase any shares;
and no person shall issue, distribute or publish any
material which in its form and context is calculated to
be understood as an offer or invitation as aforesaid
unless the offer, invitation or material is accompanied
either by a prospectus complying with the COBE or by
a written statement containing the particulars
required by section 114 to be included therein.

Sec 123 - Financial General: It is prohibited for a company to give financial

assistance by company assistance for the purchase of its own or its holding
for purchase of its own or company’s shares.
its holding company’s Unless:
shares  Assistance is given in terms of a special resolution
 Immediately after assistance is given: FV of assets exceed
its liabilities and the company is able to discharge its
debts in the ordinary course of its business.
If provision breached directors can be held personally liable
for any losses suffered through such actions.

Sec 124 - Application of 1. If a company issues shares at a premium, whether for

share premiums cash or otherwise, a sum equal to the aggregate
amount or value of the premiums on those shares
shall be transferred to an account called “the share
premium account” and provisions of the COBE relating
to the reduction of a company’s share capital shall
apply, except as provided in this section, as if the
share premium account were part of its paid-up share
capital.

2. A company may apply its share premium account—

a. in paying up unissued shares to be allotted to its
members, directors or employees, or to a trustee for
such persons, as fully paid bonus shares or
b. in writing off—

Sec 125 - Power to issue
shares at a discount
i. the company’s preliminary expenses; or
ii. the expenses of, or the commission paid or
discount allowed on, any issue of shares or
debentures of the company or
3. in providing for the premium payable, if any, on
redemption of any redeemable preference shares or
of any debentures of the company.
1. It is lawful for a company to issue shares at a discount
in the company of a class already issued provided that
(a) the issue of the shares at a discount must be
authorised by special resolution of the company and
must be sanctioned by the court
(b) the special resolution must specify the maximum rate
of discount at which the shares are to be issued
(c) not less than one year must, at the date of the issue,
have elapsed since the date on which the company
was entitled to commence business
(d) the shares to be issued at a discount must be issued
within thirty days after the date on which the issue is
sanctioned by the court or within such extended time
as the court may allow.

Sec 126 - Power to issue 

A company may, if authorised by its articles, issue
redeemable shares shares which are to be redeemed or which are liable
to be redeemed at the option of the company or the
shareholder concerned.
 No redeemable shares shall be issued at a time when
there are no issued shares of the company which are
not redeemable.
 Redeemable shares may not be redeemed unless they
are fully paid, and the terms of redemption shall
provide for payment on redemption.
Sec 127 - Financing at  Redeemable shares shall be redeemed only out of
redemption profits of the company which would otherwise be
available for dividend or out of the proceeds of a fresh
issue of shares made for the purposes of the
redemption; and
 any premium payable for redemption shall be paid out
of profits of the company which would otherwise be
available for dividend.
Sec 128 - Power of A company may, if authorised by its articles, purchase its own
company to purchase shares, including any redeemable shares. This section shall be
own shares read with section 129 and 134 of the COBE

Sec 129 - Authority  A company shall not purchase its own shares unless
required by company to the purchase has been authorised in advance by the
purchase its own shares company in a general meeting.
  An authority granted by the company in a general
meeting shall not be valid unless it specifies—
 the price, or the maximum and minimum prices, at
which the shares may be acquired; and
 the maximum number of shares which may be
acquired and the class thereof; and
 the date on which the authority will expire

Sec 132 - Disclosure by A company shall deliver to the Registrar within twenty-eight
company of purchase of days a return in the prescribed form showing, with respect to
own shares each class of shares purchased

(a) the number and nominal value of the shares; and

Sec 133 - Capital
redemption reserve
Sec 134 - Effect of failure
by company to redeem or
purchase shares
(b) the date on which the shares were delivered to the
company; and
(c) the aggregate amount paid by the company for the
shares; and
(d) the maximum and minimum prices paid in respect of
shares of each class purchased.
1. Where shares of a company are redeemed or
purchased wholly out of the company’s profits, the
amount by which the company’s issued share capital
is diminished on cancellation of the shares concerned
shall be transferred to a reserve, called “the capital
redemption reserve”.
2. If shares are redeemed or purchased by a company
wholly or partly out of the proceeds of a fresh issue
and the aggregate amount of those proceeds is less
than the nominal value of the shares redeemed or
purchased, the amount of the difference shall be
transferred to the capital redemption reserve
1. Where a company has
a. issued shares on terms that they are liable to be
redeemed; or
b. agreed to purchase any of its own shares. The
company shall not be liable in damages in respect of
any failure on its part to redeem or purchase any of
the shares, and no order for specific performance of
the terms of redemption or purchase shall be made by
any court, if the company shows that it is unable to
meet the costs of redeeming or purchasing, as the
case may be, the shares in question out of profits of
the company that would otherwise be available for
dividend.

Sec 136 - Reserve liability A company may by special resolution determine that any
of company portion of its share capital which has not been already called
 up shall not be capable of being called up, except in the event
and for the purposes of the company being wound up or, in
respect of a company placed under judicial management,
with the sanction of the court, and thereupon that portion of
its share capital shall not be capable of being called up except
in the event and for the purposes mentioned.

Sec 137 - Capitalisation Except to the extent that a company’s memorandum of

shares incorporation provides otherwise—
(a) the board of that company, by resolution, may
approve the issuing of any authorised shares of the
company, as capitalisation shares, on a pro rata basis
to the shareholders of one or more classes of shares
(b) and shares of one class may be issued as a
capitalisation share in respect of shares of another
class.
Sec 138 - Distributions A company must not make any proposed distribution unless
must be authorised by the distribution—
board (a) is pursuant to an existing legal obligation of the
company, or a court order; or
the board of the company, by resolution, has
authorised the distribution; and
(b) it reasonably appears that the company will satisfy the
solvency and liquidity test immediately after
completing the proposed distribution; and
(c) the board of the company, by resolution, has
acknowledged that it has applied the solvency and
liquidity test, and reasonably concluded that the
company will satisfy the solvency and liquidity test
immediately after completing the proposed
distribution.
Sec 139 - Existing Shareholders of a company shall have a pre-emptive right to
shareholders’ right of first acquire newly issued shares as provided in this section, for
refusal to new shares which purpose—
(a) “shares” does not include options to acquire shares or
non-share securities convertible into shares
(b) the right shall be to acquire the newly issued shares
pro rata in proportion to the number of shares already
held by such existing shareholders, at a price no less
favourable than that offered to other persons.
The company shall give each existing shareholder advance
notice of any proposed issuance stating, at a minimum, the
number of shares to be issued, the proposed price or method
of determining the price of issuance, and the time period and
procedure for exercising the pre-emptive rights.
 1. If the company has
Sec 140 - Notice to a. consolidated and divided its share capital into
Registrar of consolidation shares of larger amount than its existing shares; or
of share capital, b. converted any shares into stock; or
conversion of shares into c. reconverted stock into shares; or
stock d. subdivided its shares or any of them; or
e. redeemed any redeemable preference shares; or
f. cancelled any shares, otherwise than in
connection with a reduction of share capital under
section 96, the company shall, within one month
after so doing, give notice thereof to the Registrar
specifying the shares consolidated, divided,
converted, subdivided, redeemed or cancelled or
the stock reconverted and the Registrar shall
register such shares.

Sec 144 - Special Subject to confirmation by the court, a company may, if so

resolution for reduction authorised by its articles, by special resolution reduce its
of share capital share capital in any way without prejudice to the generality of
the foregoing power, may—
(a) extinguish or reduce the liability on any of its shares in
respect of share capital not paid up; or
(b) either with or without extinguishing or reducing
liability on any of its shares, cancel any paid-up share
capital which is lost or unrepresented by available
assets; or
(c) either with or without extinguishing or reducing
liability on any of its shares, pay off any paid-up share
capital which is in excess of the wants of the
company;

and may,
amend its memorandum by reducing the amount of its share
capital and of its shares accordingly.

Sec 150 - Numbering of 1. Each share in a company shall be distinguished by its

shares appropriate number provided that if at any time all
the issued shares in a company, or all the issued
shares therein of a particular class, are fully paid up
and rank on an equal footing for all purposes, none of
those shares need thereafter have a distinguishing
number so long as it remains fully paid up and ranks
on an equal footing for all purposes with all shares of
the same class for the time being issued and fully paid
up.
Sec 167 - Annual general 1. AGM of a company must be held annually.
meeting (AGM) 2. The agenda for an AGM shall include the following
 items amongst others
(a) electing the members of the board of directors who
are to be elected at that time
(b) setting or approving the compensation of directors
including emoluments, salaries and pensions
Sec 175 - Special 1. It is a resolution passed by a majority of at least ¾ of
resolutions the eligible votes who are present
2. 21 days’ notice period should have been given before
passing of such resolution.
3. At least ¼ of the total votes of the company should be
present for a special resolution to be passed,
4. All other resolutions at a general meeting shall be
called ordinary resolutions
Sec 180 - Minutes of 1. A record of each meeting of members shall be
meetings of members prepared not later than twenty (20) days after the
meeting.
2. Meeting minutes should be signed by the chairperson
and any secretary of the meeting who are responsible
for the minutes completeness and accuracy.
3. If the Registrar becomes aware that a company has
not been keeping minutes in accordance with this
section the company shall be liable to a category 2
civil penalty
Sec 182 - Keeping of Every company shall keep financial records in the English
financial records language or any officially recognised language financial
records to be kept with respect to—
(a) all sums of money received and expended by the
company and the matters in respect of which the
receipt and expenditure
(b) all sales and purchases of goods by the company
(c) the assets and liabilities of the company
Sec 185 - Meaning of 1. A company is deemed to be a subsidiary of another
holding company, company if that other either—
subsidiary and wholly (a) is a member of it and controls the composition of its
owned subsidiary board of directors or
(b) holds more than half in nominal value of its equity
share capital
2. A company shall be deemed to be the wholly owned
subsidiary of another if it has no members except that
other and that other’s wholly-owned subsidiaries and
its or their nominees.
3. A company shall be deemed to be another’s holding
company if that other is its subsidiary.
Sec 186 - Obligation to 1. Where at the end of its financial year a company has
lay group accounts subsidiaries, accounts or statements, in this Act
before holding company referred to as “group accounts”, dealing as hereinafter
mentioned with the state of affairs and
 comprehensive income of the company and the
subsidiaries shall, subject to subsection (2), be laid
before the company in general meeting when the
company’s own financial statements are so laid.
2. Notwithstanding anything in subsection (1)—
a. group accounts shall not be required where the
company is, at the end of its financial year, the wholly
owned subsidiary of another company incorporated in
Zimbabwe;
b. group accounts need not deal with a subsidiary of the
company if the company’s directors are of the opinion
that—
i. it is impracticable, or would be of no real value to
members of the company, in view of the insignificant
amounts involved, or would entail expense or delay
out of proportion to the value to members of the
company; or
ii. the result would be misleading or harmful to the
business of the company or any of its subsidiaries; or
iii. the business of the holding company and that of the
subsidiary are so different that they cannot
reasonably be treated as a single undertaking;
Sec 191 -Appointment, 1. Auditor to be appointed by directors within one
remuneration, duties, month of issuance of commencement of business
powers and removal of certificate.
auditors 2. The company may remove an auditor at a general
meeting and appoint another auditor who has been
nominated by special notice.
3. Auditors are supposed to be re/appointed at each
annual general meeting
4. Remuneration of auditors shall be fixed at the AGM
5. A private company shall not be required to appoint
auditors if:
- It has less than ten members and
- None of the shareholders is
a. Public company
b. A pvt company owned by a public company and
c. The company is not a subsidiary of a holding company
which has itself appointed auditors and
d. All the members agree that an auditor shall not be
appointed
e. No person shall serve as an auditor of a company for
more than five consecutive financial years
Sec 192 - Disqualifications 1. None of the following persons shall be qualified for
for appointment as appointment as auditors of a company:
auditor a. An officer or servant of the company
b. A person who is a partner of an officer or servant of
 the company
c. A person who is an employer or an employee of an
officer or servant of the company
d. A body corporate
e. A person who by himself or his partner performs the
duties of secretary or bookkeeper of the company.
Sec 193 - Auditor’s report 1. The auditor shall make a report on the accounts he
examines as laid before him in the general meeting
during his tenure of office, the report shall contain
statements as to whether, in his or her opinion, the
financial statements or, of a company submitting
group accounts are properly drawn up in accordance
with the COBE Act so as to give a true and fair view of
the state of the company’s affairs at the date of its
financial statements for its financial year ended on
that date;
Sec 195-197 -Directors 1. A private company with more than one but less than
and their functions and ten shareholders shall have two or more directors, a
responsibilities private company with more than ten shareholders
shall have three or more directors, a public company
shall have seven to fifteen directors.
2. At least one director shall be ordinarily resident in
Zimbabwe.
3. Any director who is a company’s chief executive
officer shall not also be the chairperson of the board
of that company
4. Each director shall exercise independent judgment
and act in good faith, to promote the success of the
company for the benefit of its shareholders as a whole
Sec 198 - Company 1. Every company should have at least one secretary
secretary: functions, ordinarily resident in Zimbabwe.
qualifications and 2. The board of a public company shall appoint one or
disqualifications more secretaries, being a person or persons who are
qualified in terms of subsection (4) to be the secretary
of a public company, and who must not also hold
another office as an officer of the company.
3. The functions of the secretary include the following
amongst others
a. acting as custodian of the company’s records
b. ensuring that notices of all shareholder, board and
board committee meetings are given.
Sec 200 - Disqualification 1. The following persons shall be disqualified from being
for appointment as appointed a director of a public company—
director (a) a body corporate; or
(b) a minor or any other person under legal disability; or
(c) a person who is removed by the court from any office
of trust on account of misconduct save with the leave
 of the court; or
(d) a person who has at any time been convicted whether
in Zimbabwe or elsewhere, of theft, fraud, forgery or
perjury and has been sentenced therefore to serve a
term of imprisonment without the option of a fine or
to a fine exceeding level five.
Sec 202 - Removal and 1. One or more directors may be removed, with or
resignation of directors without a stated reason or cause, at a general meeting
by a majority of the votes of shares then entitled to
vote at an election of directors
2. The removal of a director shall not in itself prejudice
any right to compensation upon removal which the
director may have under a contract with the company.
3. A director may resign at any time by giving written
notice, as far in advance as is practicable, to the board
of directors or its chairperson.
Sec 203 - Vacancies on 1. A vacancy on a board of directors shall be filled by
board of directors election at the next general meeting at which
directors are to be elected, except that the company’s
articles of association provides otherwise.

Sec 204 - Quorum and A majority of the total number of directors shall constitute a
vote required quorum for decision making, unless a greater number for a
quorum is specified in the articles of association
Sec 205 - Minutes of Minutes shall be prepared promptly after the meeting, and
meeting of board and shall be submitted to the board or committee at its next
committees meeting for its review and adoption
Sec 206 - Independent  This section defines an independent non-executive
directors required for director
public companies  A public company shall have at least three non–
executive or independent directors on its board of
directors.
Sec 207 - Shareholder A company may pay reasonable emoluments to directors
approval of directors’ which may include shares or options for shares of the
emoluments company.
The emoluments of a director of a public company must be
approved by the shareholders of that company at the annual
general meeting.
Sec 208 - Prohibition of Loans to directors are prohibited unless the funds are
financial assistance to provided to
directors  Reimburse expenditure to be incurred by the director
in discharging company business.
 The company is in the business of giving out such
types of loans.
 The company is a private company and at least 9/10
of the shareholders consent. (the company should not
be a subsidiary company).
  Purchase shares in the company (as read with sec
123).

Sec 209 - Approval of  It is not lawful for a public company to pay a director
company requisite for for compensation of loss of office or retirement from
payment by it to director office, without full particulars of the proposed
for loss of office payment, including the amount thereof being
disclosed to members of the company and the
proposal being approved by the company in a general
meeting.
 For private companies, the secretary shall file with the
Registrar within thirty days in the event that a director
has been paid for loss of office and furnishing all the
particulars thereof.
Sec 218 - Board’s role and The board of directors is responsible for decisions on all
responsibilities matters except those reserved to the shareholders by the
COBE Act or by the company’s constitutive documents.
The board’s responsibilities include for example
(a) determining and directing overall business
performance and strategy plans for the company and
(b) ensuring that the financial records, financial
statements and external audit are kept and
maintained
(c) the appointment, removal, compensation and
performance of officers and oversight of management
of the company and
(d) the convening of and preparation of the initial agenda
for shareholder meetings.
(e) Payment dates for, and procedures in connection
with, the payment of dividends and other
distributions.

Sec 219 - Audit 1. The Board of every public company shall appoint an
committee of public audit committee consisting of at least three
company appointees, all of whom shall be independent
directors, under no circumstances may the
chairperson of the board be a member of the audit
Committee.
2. The audit committee shall be responsible for
a. the selection, remuneration, and terms of
engagement of an external auditor, who, in its
judgment, is independent of the company.
b. proposing, for approval by the shareholders, the
engagement of that auditor upon such remuneration
and other terms as it has determined to be
reasonable; and
c. monitoring the independence of the company’s
 external auditor amongst others

Sec 227 - Power to A private or public company or cooperative company may

undertake mergers and undertake and complete a merger at any time as provided by
major asset transactions the Tariff and Competition Act [Chapter 14:20] or a major
asset transaction.
Sec 250 - Conversion of A private business corporation that wishes to convert to a
private business company shall deliver to the Registrar
corporation into  an application in the prescribed form signed by all its
company members; and
 all documents necessary for the formation of a
company under the COBE Act.
Sec 251 - Conversion of Any company having not more than twenty members, all of
company into private whom qualify for membership of a private business
business corporation corporation may apply for conversion to a private business
corporation in terms of this section.
Sec 264 - Financial A private business corporation may, with the consent of all its
assistance by private members, give financial assistance for the acquisition of a
business corporation for member’s interest in the private business corporation if,
acquisition of members’ immediately after such assistance is given, the private
interests business
(a) corporation’s assets, excluding any claim or security
resulting from the giving of assistance, fairly valued,
will exceed its liabilities and
(b) it will be able to pay its debts as they become due in
the ordinary course of its business

Sec 270 - Restriction on A private business corporation shall not directly or indirectly
payments to members pay any dividend, make any distribution, repay any
contribution, make any other payment or transfer any
property to any member by reason only of his or her
membership unless,
(a) immediately after the payment or transfer, the private
business corporation’s assets, fairly valued, will
exceed its liabilities and
(b) it will be able to pay its debts as they become due in
the ordinary course of its business.

A member shall repay any money and return any property he

or she has received from the private business corporation,
until he or she does so he or she shall be liable, jointly and
severally with the private business corporation, for all its
debts.
Sec 271 - Financial  Every private business corporation shall keep financial
records records in accordance with this section. The financial
records shall present the state of affairs and business
of the private business corporation and to explain the
 transactions and financial position of the private
business corporation.
 Every private business corporation shall preserve its
financial records for six years from the end of the
financial year to which they relate.

Sec 275 - Duties of an An accounting officer to whom the annual financial

accounting officer statements of a private business corporation have been
submitted shall without delay—
(a) determine whether the annual financial statements
are in agreement with the financial records of the
private business corporation and
(b) review the appropriateness of the accounting policies
applied in the preparation of the annual financial
statements amongst others.
10. Question on the Companies and other business entities Act

Mazhanje Chartered Accountants (Mazhanje), a medium sized firm of registered auditors

operating from their only office in Harare, have recently been appointed the auditors of
CashMoney (Private) Limited (CashMoney). CashMoney is a company listed on the
Zimbabwe Stock Exchange and has been trading for the past 22 years. The company
operates various restaurants in the cities of Harare, Gweru, Mutare and Bulawayo and has a
31 December year end. CashMoney’s strategy has been to offer fast food outlets targeting
the low income earners as well as the high income earners.
You are an audit manager within Mazhanje’s audit and assurance department and have
been appointed to be the audit manager on the CashMoney audit for the 31 December
2020 year end. Mazhanje was appointed to the audit of CashMoney by Mike Morningstar
the CEO of CashMoney on the 5th of January 2021. The appointment came after Mike failed
to reach an agreement with their incumbent auditors TKF Chartered Accountants for the
reduction of audit fees. However, after meeting Paul Masi CA (Z) a partner in Mazhanje,
Mike was convinced that Mazhanje would charge a competitive fee as compared to the
current fees that CashMoney was being charged by TKF.
The CashMoney audit was a major win for the firm as this would be the first time that
Mazhanje will be auditing a listed company and the partnership believed that this was an
indication of greater things to come for the firm. Mike indicated to Paul that he would want
the audit finalised as soon as possible as they were looking to approach their shareholders
to raise additional capital through a rights issue to fund some capital projects. After
preliminary discussions with the Paul, the engagement partner on the CashMoney audit you
were provided with the following working papers:
WP 201: CashMoney Background information
WP 202: Developments during the current year

Entity name: CashMoney Year End 31 December WP 201

(Private) Limited 2020
Prepared By T. Harvey Date: 14 January 2021
Reviewed by
Audit section Client Investigation – Background Information

Background Information

Mike Morningstar started CashMoney (Private) Limited in the early 90’s operating a single
restaurant in Harare city centre and over the years the business has expanded and to date
the company operates and owns 30 outlets across the cities of Harare, Gweru, Mutare
and Bulawayo. Given the continued growth of the company, Mike was convinced to list
CashMoney on the Zimbabwe Stock Exchange in 2009 soon after the adoption of the
multi-currency system in Zimbabwe. Mike, through his investment company Morningstar
(Private) Limited, retained a shareholding of 40% when the company was listed and the
balance of the shares are held by various institutional shareholders as well as other
individual shareholders. The CashMoney Restaurants are operated under the brand name
Cup & Coffee and the brand has become highly regarded in the Zimbabwean market. You
found the following information on the company’s website:

Cup & Coffee is a coffee themed restaurant chain focused mainly on the Zimbabwean
shopping market: it is essentially a “shoppers shop”. Cup & Coffee provides the highest
standard of coffee and associated hot beverages in addition to a great selection of food
items, from various breakfast options to lunches and dinners. Cup & Coffee has won the
Caxton Leisure Options “Best Coffee Bar” category for 10 years in a row.

Over the past 2 years CashMoney (Private) Limited has been seeing its operating margins
shrink due to increasing competition from low cost restaurants opening in the markets
that CashMoney operates in. The continued economic difficulties that the country has
been facing over the past year have also put further strain on CashMoney’s margins.

Entity name: CashMoney Year End 31 December WP 202

(Private) Limited 2020
Prepared By E. Gatsi Date: 23 January 2021
Reviewed by
Audit section Developments during the current year

You were provided with the following extract of minutes of the annual board of directors
meeting held on the 15th of June 2020:

Present:
Mike Morningstar – CEO and Chairman
Takura Gaso – Chief Finance Officer
Honey Coopers – Operations director
Noel Bata – Independent Non-Executive director
Solomon Moyo – Independent Non-Executive director
Loice Katikati – Non - Executive director
Ackson Bobo – Chief Internal Audit Executive

Apologies: None

The following matters were discussed during the board meeting.

1. Approval of directors remuneration

During the meeting, the board passed a resolution to grant all board members share
options which are immediately exercisable, for the purchase of CashMoney (Private)
Limited share. The grant date for the share options as agreed by the board was 1 July
2020. Some of the directors indicated that they do not have sufficient funds to enable
them to exercise their share options, the board therefore passed another resolution
for the granting of loans by CashMoney to these affected directors. As Mike explained
 in the meeting the reasoning behind these options was to encourage directors to act
in the best interest of the company since they would also now have a financial interest
in the company.

2. Rights Issue
Mike informed the board meeting that the company was looking to undergo a
refurbishment exercise of all their restaurants. In order to finance the exercise Mike
proposed that the company raise the money through a rights issue as in the past some
of the company’s members have indicated that they do not want their shareholding to
be diluted. After lengthy deliberations on the pros and cons of a rights issue the board
finally passed a resolution authorizing the rights issues as proposed by Mike.

3. Report from the audit committee

Takura Gaso the chairman of the audit committee informed the board that the
audited financial statements for the December 2019 year-end had been finalised and
have already been filed with the Zimbabwe Stock Exchange. The board was also
informed that audit committee was scheduling to have their annual meeting on the
30th of September 2020.

4. Report from the Chief Internal Audit executive

The chief internal audit executive reported that the internal audit department have
recently finished an exercise to evaluate controls over the company’s procurement
cycle. The exercise was completed and finalised in March where the report from the
exercise was presented to Takura for follow up on issues identified. Ackson also had a
meeting in February 2020 with Mike where he presented his annual internal audit
plan for 2020.

5. Refurbishment exercise
In the meeting the board of directors resolved to award the contract for the
refurbishment exercise to Takemore (Private) Limited a company owned by Solomon
Moyo. In the meeting it was discussed that Takemore (Private) Limited has never
handled a contract of this size before, however the board went on ahead with
awarding the contract to the company after getting assurance from Solomon that his
company will be able to handle the job. All the directors present at the meeting voted
in favour of awarding the contract to Takemore (Private) Limited.

There being no other business the meeting was adjourned at 17:00 hours.

Required
 Using the information contained in working paper 202, identify and discuss in 5 marks
detail the statutory concerns relating to CashMoney (Private) Limited for the
year ended 31 December 2020. Limit your answer to the requirements of the
Companies and Other Business Enities Act Chapter 24:31.

CAA CTA Part-time Test 2 2016 Adapted

Solution

Loans to purchase shares in CashMoney – sec 123

 It is prohibited for a company to give financial assistance for the purchase of
its own shares. (1)
 Some of the non-executive directors were awarded loans to exercise their
share options but there is no evidence that there was a special
resolution passed by the members of CashMoney authorizing the 3
transaction as required by sect 123. (1)
 Also, there is no evidence that the directors considered whether
immediately after awarding the loans to the directors the FV of assets
exceeded their liabilities. (1)

Removal of auditors – Sec 191

 It appears that no special notice was passed at CashMoney’s general
meeting for the removal of the predecessor auditors as required by sec 1
191.

Director’s interest in a contract – sect 56 and 57

 Solomon has a direct interest in the contract awarded to Takemore
1
(Private) Limited, he should therefore not have voted on the matter to
award the contract to the company he owns, as required in terms of section
56 and 57.

Total marks 5